Global Eagle Entertainment Inc. (Nasdaq: ENT) (“Global Eagle,” the
“Company” or “we”), a leading provider of media, content,
connectivity and data analytics to markets across air, sea and
land, today announced financial results for the fourth quarter and
full year ended December 31, 2019. For the fourth quarter of
2019, Global Eagle recorded revenue of $163 million, incurred a net
loss of $36.1 million, and generated Adjusted EBITDA* of $24.6
million despite the continued headwind from the Boeing 737 MAX
grounding. For the full year 2019, Global Eagle generated
record revenue of $657 million, incurred a net loss of $153.4
million, and generated Adjusted EBITDA* of $91.2 million.
“We continue to make substantial progress across
the Company,” commented Josh Marks, CEO of Global Eagle. “We
are winning new business from our customers, driving technological
innovation, and right-sizing our cost base. In 2020, we plan
to build upon the foundation we’ve set over the last two years and
rapidly adapt to the current environment.”
Financial Results
During the fourth quarter of 2019, Global Eagle
continued to drive improvement in financial performance. Revenue of
$163 million was up 1.4% over the prior-year period driven by 26.3%
growth in Connectivity equipment revenue from increased aircraft
installations. Revenue growth was partially offset by an
intentional decline in distribution revenue within the Media &
Content segment as the Company exits content distribution
activities with unfavorable cash flow profiles. Gross margin
improved 4.6 percentage points over the prior-year fourth quarter
driven by the improvement in Connectivity gross margin.
Connectivity gross margin improvement occurred in both the Aviation
Connectivity and Maritime, Enterprise, and Government (“MEG”)
businesses. The improvement was driven by the activation of
additional aircraft on the Company’s network, growth in services to
cruise markets, and improved management of network costs. Net
loss was $36.1 million for the fourth quarter, a $73.1 million
improvement versus the prior-year period. Net loss in the
prior-year period included a $51.0 million non-cash impairment of a
joint venture. Excluding the non-cash impairment in the
prior-year period, net loss improved driven by the increase in
gross margin, as discussed above, in concert with lower operating
expenses. Adjusted EBITDA of $24.6 million increased 44.7%
versus the prior-year period. Adjusted EBITDA growth was
driven by improvement in gross margin, as discussed above, and with
lower operating expenses. Operating expenses benefitted from
the full implementation of our Phase II cost savings initiatives in
the fourth quarter.
Cash flows from operating activities improved
$3.4 million during the fourth quarter of 2019, over the prior-year
period. The improvement in cash flows from operating
activities was driven by the improvement in net loss as discussed
above. Fourth quarter 2019 free cash flow* of $(3.4) million
improved $11.2 million over the prior-year period. The improvement
in free cash flow was driven by lower net loss, as discussed above,
and a decline in purchases of property and equipment as key growth
investments were completed in the first quarter of 2019. As
of December 31, 2019, the Company had approximately $61 million of
liquidity which includes cash and unused revolver capacity.
We are implementing our previously disclosed
Phase III cost initiatives in the first half of 2020. Our
Phase III initiatives will target business process reengineering
and procurement initiatives. In March 2020, we commenced
implementation of the majority of the plan’s initiatives and we
expect the plan to have a positive impact beginning in the second
quarter of 2020, building throughout the year. We expect Phase III
to generate more than $10 million of additional savings during
2020.
“Our fourth quarter of 2019 continued to
evidence our sustained improvement in operating performance and our
ability to delever through earnings growth,” said Christian Mezger,
CFO of Global Eagle. “We believe that the cost and
operational actions taken last year, now evident in our fourth
quarter results, combined with additional Phase III actions in
2020, position the Company to weather the current COVID-19
challenges.”
Connectivity
Global Eagle’s Connectivity segment is a leading
provider of satellite-based connectivity and live television
programming to aviation, maritime, enterprise and government
markets. Connectivity segment revenue was up 3.3% year-over-year
despite the impact of the Boeing 737 MAX grounding as discussed
below. Inflight connectivity installations and activations
continue at Air France, powered by Global Eagle’s Ku
high-throughput satellite (HTS) network. We operate the first EMEA
HTS inflight connectivity network to provide consistent coverage
and up to 500 Mbps throughput in Europe, Russia, Scandinavia, and
North Africa. The Company remains on track for second half
installations for our previously announced new connectivity
customer, Turkish Airlines.
Boeing 737 MAX Impact
Based on current information, the Company
expects the Boeing 737 MAX aircraft in its fleet of connected
aircraft to resume normal operations in the second half of
2020. Due to regulatory actions beyond our control and
unrelated to passenger connectivity systems, our MAX-connected
aircraft remained grounded during the fourth quarter. We continue
to forecast that MAX program issues will impact services revenue,
including both Connectivity and Media & Content revenue, by
approximately $3 million per quarter, with an Adjusted EBITDA
impact of approximately $2 million per quarter.
Due to the production halt of the aircraft, we
expect between 10 and 15 fewer aircraft installations per
quarter. The impact on equipment revenue is expected to be
approximately $4 to $5 million per quarter with gross margin impact
around 20%. In addition, we expect to carry an additional $4
to $5 million of inventory until production is resumed, and we are
working with our suppliers to align our supply chain to current
expectations. We remain focused on working with our airline
partners and with Boeing to be ready when the MAX returns to
service and production.
Media & Content
During the fourth quarter, Media & Content
revenue was down 0.6% over the prior-year quarter primarily due to
a decline in distribution. We continued to intentionally exit
certain unprofitable activities in our distribution business with
unfavorable cash flow profiles. We are transitioning
customers onto Open™ and expect this transition to continue
throughout 2020. Global Eagle’s digital content supply chain
technology platform, branded Open™, is active with about 60,000
audio, movies, television, trailers and music videos now
transitioned to the platform. Our Open™ platform is unique to the
industry as it optimizes workflow for the cloud environment, tracks
content from acquisition to delivery, collects data to improve
analytics, and interfaces directly with major media partners.
To date, Open™ has delivered about 300,000 media assets to
airlines. The platform enables new efficiencies and
capabilities for 4K/HD content, broader content selection and
greater content customization.
As Global Eagle has focused our distribution
activities, we increased the robustness of our content slate. Our
wholly owned distributors Emphasis and EIM, are celebrating
Oscar®-winning content following the success
of Parasite, Judy and 1917 at this year’s
Academy Awards. Emphasis has worldwide rights
outside Korea for Parasite, which won four Oscars®
including the first entirely foreign-language film to win Best
Picture. EIM has rights for Judy and 1917, with
Renée Zellweger taking Best Actress and Sir Sam
Mendes’ war epic celebrating three Oscar® wins including Best
Visual Effects, Best Sound Mixing, and Best Cinematography.
COVID-19 Outbreak Summary
Due to limited data, it is too early to quantify
the impact of the COVID-19 outbreak on the travel industry, Company
operations or our financial performance. The majority of the
Company’s revenue is derived from a monthly recurring charge
structure rather than a usage-based structure. However, given
the probable impact on global airlines and cruise lines, management
is accelerating Phase III costs initiatives, including developing
more aggressive plans should the impact from COVID-19 on aviation
and maritime increase. In addition, management is in the
process of modifying business continuity plans for the current
circumstances. We remain focused on working with our partners
across all verticals to serve their needs in a dynamic
environment. We expect to provide more information as
additional data becomes available and the impact on our business
becomes clearer.
Phase III Cost Savings
Initiatives
In the first quarter of 2020, the Company began
initiating its Phase III cost savings initiatives. Phase III
will target business process reengineering and procurement
initiatives across all business units. Implementation of the
initiatives began in March 2020 and is expected to build throughout
the year. These savings are expected to benefit both cost of sales
and operating expenses with less than a one-year payback on
restructuring expenses. The plan is expected to be finalized in the
first quarter of 2020.
Strategic Initiatives
The Company continues to work with its joint
venture partner and our financial advisor to evaluate the potential
sale of the WMS joint venture interest.
The Company has concluded the Maritime,
Enterprise, and Government (“MEG”) strategic review process that we
first announced in early 2019, electing to retain the unit. During
the course of the year, we drove significant improvements in the
performance of the business, including major customer renewals,
launch of new technologies, and cost reduction activities.
Specifically, MEG gross margin improved 16.9% points in the fourth
quarter of 2019 relative to the prior-year period. We did not
receive actionable bids that met our expectations relative to the
current and potential future performance of the business.
Therefore, we will focus on continued execution of our strategic
plan.
“The Company, with the support of our financial
advisor, conducted an exhaustive strategic review process, engaging
with several interested parties to evaluate the relative benefits
of various strategic alternatives with the purpose of maximizing
value and accelerating deleveraging of our balance sheet,”
said Josh Marks, CEO. “After consultation with our financial
and legal advisors and our Board, we concluded that the best
interests of shareholders, debtholders, customers and employees are
served by retaining the MEG unit, deepening integration between
aviation, maritime and government verticals, and leveraging our
global scale in network design and procurement. Nonetheless, we
remain open to all potential value creating opportunities.”
Full Year 2019 Summary
- Total revenue for the full year
2019 was $657 million, up $9.8 million or 1.5% versus the
prior-year period. Revenue growth was driven by increased
Connectivity equipment installations, new CSP customers including
the initiation of a large contract. Full-year revenue growth
was partially offset by a decline in Connectivity service revenue
resulting from our cruise contract reset starting in the fourth
quarter of 2018, and the decline in Media & Content
distribution revenue as the Company continues to exit unprofitable
business activities with unfavorable cash flow profiles.
- Gross margin declined to 20.3%
during the year, a 0.5 percentage point decline versus the prior
year, driven by Media & Content gross margin. Media &
Content gross margin declined driven by a shift to more large
Pass-Through accounts. Significant improvement in Connectivity
margins, as indicated above, partially offset the
decline.
- Operating expenses were $197.9
million, down $46.6 million (or 19.1%) versus the prior-year
period. Operating expenses improved primarily due to the full
year benefit of Phase I cost initiatives and the partial year
benefit of Phase II cost initiatives.
- Net loss for the full year 2019 was
$153.4 million, down $83.2 million versus the prior-year period.
Net loss in the prior-year period included a $51.0 million non-cash
impairment of a joint venture. Excluding the non-cash
impairment in the prior-year period, the net loss was lower
primarily driven by higher revenue from aircraft installations and
operating expense improvement as indicated above.
- Adjusted EBITDA for the full year
2019 was $91.2 million, which was a 24.7% increase versus the
prior-year period. The improvement in Adjusted EBITDA versus
the prior year was primarily driven by higher revenue and operating
expense improvement discussed above.
- Cash used in operations for the
full year 2019 was $9.2 million, an improvement of $64.9 million
versus the prior-year period. The improvement in cash used in
operations versus the prior year was primarily driven by higher
revenue from aircraft installations and operating expense
improvement as discussed above in net loss.
- Free cash flow* for the full year
2019 was $(29.2) million, a positive improvement of $88.4 million
versus the prior-year period. The improvement in free cash
flow versus the prior year was primarily driven by improved cash
used in operating activities as discussed above, in addition to,
lower purchases of property and equipment as key growth investments
were completed in the first quarter of 2019.
Webcast
We will host a live webcast on Thursday, March
19, 2020 at 8:00 a.m. ET (5:00 a.m. PT). We will make the
webcast and an accompanying slide presentation available on the
Investor Relations section of our website at
http://investors.geemedia.com/events-and-presentations. We
will maintain an archive of the webcast on our website for 30 days
following the event.
About Global Eagle
Global Eagle is a leading provider of media,
content, connectivity and data analytics to markets across air, sea
and land. Global Eagle offers a fully integrated suite of rich
media content and seamless connectivity solutions to airlines,
cruise lines, commercial ships, high-end yachts, ferries and land
locations worldwide. With approximately 1,100 employees and 35
offices on six continents, the Company delivers exceptional service
and rapid support to a diverse customer base. Find out more at:
www.GlobalEagle.com.
Contact:
Peter A. LopezVice President, Finance and
Investor Relations+1
310-740-8624investor.relations@GlobalEagle.compr@GlobalEagle.com*
About Non-GAAP Financial Measures
To supplement our consolidated financial
statements, which are prepared and presented in accordance with
accounting principles generally accepted in the United States, or
GAAP, we present EBITDA, Adjusted EBITDA and free cash flow, which
are non-GAAP financial measures, as measures of our performance.
The presentations of EBITDA, Adjusted EBITDA and free cash flow are
not intended to be considered in isolation from, or as a substitute
for, or superior to, net income (loss), cash flows from operations
or any other performance measures derived in accordance with GAAP
or as an alternative to net cash provided by operating activities
or any other measures of our cash flows or liquidity. For a
reconciliation of EBITDA, Adjusted EBITDA and free cash flow to its
most comparable measure under GAAP, please see the table entitled
“Reconciliation of GAAP to Non-GAAP Measure” at the end of this
press release. Further, we note that Adjusted EBITDA as presented
herein is defined and calculated differently than the “Consolidated
EBITDA” definition in our senior secured credit agreement and in
our second lien notes, which Consolidated EBITDA definition we use
for financial-covenant-compliance purposes and as a measure of our
liquidity.
EBITDA, Adjusted EBITDA and free cash flow are
three of the primary measures used by our management and Board of
Directors to understand and evaluate our financial performance and
operating trends, including period to period comparisons, to
prepare and approve our annual budget and to develop short- and
long-term operational plans. Additionally, Adjusted EBITDA is one
of the primary measures used by the Compensation Committee of our
Board of Directors to establish the funding targets for (and if
applicable subsequent funding of) our Annual Incentive Plan bonuses
for our employees. We believe our presentation of EBITDA, Adjusted
EBITDA and free cash flow is useful to investors both because it
allows for greater transparency with respect to key metrics used by
our management in their financial and operational decision-making
and because our management frequently uses it in discussions with
investors, commercial bankers, securities analysts and other users
of our financial statements.
We define Adjusted EBITDA as EBITDA (net income
(loss) before (a) interest expense (income), (b) income tax expense
(benefit) and (c) depreciation and amortization), as further
adjusted to exclude (when applicable in the period) (1) change in
fair value of financial instruments, (2) other (income) expense,
including (gains) losses from foreign-currency-transaction (gains)
and from other investments, which include impairment charges
relating to our joint ventures, (3) goodwill impairment expense,
(4) stock-based compensation expense, (5) strategic-transaction,
integration and realignment expenses (as described below), (6)
auditor and third-party professional fees and expenses related to
our internal-control deficiencies (and the remediation thereof) and
complications in our audit process relating to our control
environment, (7) (gain) loss on disposal and impairment of fixed
assets, (8) non-ordinary-course legal expenses (as described
below), (9) losses related to significant customer bankruptcies or
financial distress (as described below) and (10) expenses incurred
in connection with grounded aircraft resulting from orders,
airworthiness directives and other regulations issued by U.S. and
foreign civil aviation authorities. Management does not consider
these items to be indicative of our core operating results.
“Losses related to significant customer
bankruptcies or financial distress” includes (1) our provision for
bad debt associated with significant bankruptcies or financial
distress of our customers, (2) the costs (e.g., content acquisition
fees) that we incurred to maintain service to those customers
during their bankruptcy proceedings in order to preserve the
customer relationship and (3) costs relating to providing services
to customers for whom we recognize revenue on a cash basis due to
their financial distress.
“Non-ordinary-course legal expenses” includes
third-party professional fees and expenses and estimated loss
contingencies, provisions for legal settlements and other expenses
associated with non-ordinary-course employment, corporate and
intellectual-property-infringement disputes.
“Strategic-transaction, integration and
realignment expenses” includes (1) transaction and
procurement-related expenses and costs (including third-party
professional fees) attributable to acquisition, financing,
investment and other strategic-transaction activities (including
for new product and proof-of-concept testing), (2) integration and
realignment expenses and allowances, (3) employee-severance,
-retention and -relocation expenses, (4) purchase-accounting
adjustments for deferred revenue, costs and credits associated with
companies and businesses that we have acquired through our M&A
activities and (5) estimated loss contingencies, provisions for
legal settlements and other expenses related to claims at companies
or businesses that we acquired through our M&A activities for
underlying liabilities that pre-dated our acquisition of those
companies or businesses.
We define free cash flow as cash flows from
operating activities less capital expenditures. Free cash
flow does not represent our residual cash flow available for
discretionary expenditures, since we have mandatory debt service
requirements and other non-discretionary expenditures that are not
deducted from the measure.
Cautionary Note Regarding
Forward-Looking Statements
Certain statements in this press release may
constitute “forward-looking” statements within the meaning of the
Private Securities Litigation Reform Act of 1995. These
forward-looking statements include, without limitation, statements
with respect to our expected Adjusted EBITDA for the fourth quarter
of 2020 and the related assumptions, Phase III initiatives and the
resulting impact, including savings during 2020, the expected
return of the Boeing 737 Max and the impact of the Boeing 737 MAX
aircraft grounding on our financial performance, the potential
impact of COVID-19 on our business, our business and
financial-performance outlook and the related assumptions,
industry, business strategy, plans, and other financial and
operating information. The words “anticipate,” “assume,” “believe,”
“budget,” “continue,” “could,” “estimate,” “expect,” “intend,”
“may,” “plan,” “potential,” “predict,” “project,” “should,” “will,”
“future” and the negative of these or similar terms and phrases are
intended to identify forward-looking statements in this press
release.
Forward-looking statements reflect our current
expectations regarding future events, results or outcomes. These
expectations may or may not be realized. Although we believe the
expectations reflected in the forward-looking statements are
reasonable, we can give you no assurance these expectations will
prove to have been correct. Some of these expectations may be based
upon assumptions, data or judgments that prove to be incorrect.
Actual events, results and outcomes may differ materially from our
expectations due to a variety of known and unknown risks,
uncertainties and other factors. Although it is not possible to
identify all of these risks and factors, they include, among
others, the following:
- the effect that the rapid spread of
contagious illnesses, such as the coronavirus, could have on our
business and results of operations;
- our ability to anticipate and keep
pace with rapid changes in customer needs and technology;
- negative external perceptions that
damage our reputation among potential customers, investors,
employees, advisors and vendors;
- service interruptions or delays,
technology failures, damage to equipment or software defects or
errors and the resulting impact on our reputation and ability to
attract, retain and serve our customers;
- the effect of cybersecurity
attacks, data or privacy breaches, data or privacy theft,
unauthorized access to our internal systems or connectivity or
media and content systems, or phishing or hacking, on our business,
our relationships with customers, vendors and our reputation;
- our ability to timely remediate
material weaknesses in our internal control over financial
reporting; the effect of those weaknesses on our ability to report
and forecast our operations and financial performance, and our
ability to raise future capital or complete acquisitions through
the use of Form S-3; and the impact of our remediation efforts (and
associated management time and costs) on our liquidity and
financial performance;
- our ability to maintain effective
disclosure controls and internal control over financial
reporting;
- our ability to execute on our
operating-expense and cost-structure realignment plan and realize
the benefits of those initiatives;
- our dependence on the travel
industry;
- our ability to expand our
international operations and the risks inherent in our
international operations, especially in light of current and future
trade and national-security disputes;
- our ability to plan expenses and
forecast revenue due to the long sales cycle of many of our Media
& Content segment’s products;
- our dependence on our existing
relationship and agreement with Southwest Airlines;
- the timing and conditions
surrounding the return to service of the Boeing 737 MAX
aircraft;
- our ability to develop new products
or enhance those we currently provide in our Media & Content
segment;
- our ability to integrate businesses
or technologies we have acquired or may acquire in the future;
- our ability to successfully divest
or dispose of business that are deemed not to fit with our
strategic plan;
- the effect of future acts or
threats of terrorism, threats to national security and other actual
or potential conflicts, wars, geopolitical disputes or similar
events on the use of Wi-Fi enabled devices on our aircraft and
maritime vessels;
- the effect of natural disasters,
adverse weather conditions or other environmental incidents on our
business;
- the possibility that our insurance
policies may not fully cover all loses we incur;
- our ability to obtain new customers
and renew agreements with existing customers;
- our customers’ solvency, inability
to pay and/or delays in paying us for our services, and potential
claims related to payments from customers received prior to such
customers’ insolvency proceedings;
- our ability to retain and
effectively integrate and train key members of senior
management;
- our ability to recruit, train and
retain highly skilled technical employees;
- our ability to receive the
anticipated cash distributions or other benefits from our
investment in the Wireless Maritime Services joint venture;
- the effect of a variety of complex
U.S. and foreign tax laws and regimes due to the global nature of
our business;
- our ability to utilize our net
operating loss carryforwards and certain other tax attributes may
be limited;
- our ability to continue to be able
to make claims for e-business and multimedia tax credits in
Canada;
- our exposure to interest rate and
foreign currency risks;
- the effect of political changes and
developments globally, including Brexit, on our customers and our
business;
- our need to invest in and develop
new broadband technologies and advanced communications and secure
networking systems, products and services and antenna technologies
as well as their market acceptance;
- increased demand by customers for
greater bandwidth, speed and performance and increased competition
from new technologies and market entrants;
- customer attrition due to direct
arrangements between satellite providers and customers;
- our reliance on “sole source”
service providers and other third parties for key components and
services that are integral to our product and service
offerings;
- the potential need to materially
increase our investments in product development and equipment
beyond our current investment expectations;
- equipment failures or software
defects or errors that may damage our reputation or result in
claims in excess of our insurance or warranty coverage;
- satellite failures or degradations
in satellite performance;
- our use of fixed-price contracts
for satellite bandwidth and potential cost differentials that may
lead to losses if the market price for our services declines
relative to our committed cost;
- our ability to plan expenses and
forecast revenue due to the long sales cycle of many of our
Connectivity segment’s products;
- increased on-board use of personal
electronic devices and content accessed and downloaded prior to
travel which may cause airlines to reduce investment in seatback
entertainment systems;
- increased competition in the
in-flight entertainment (“IFE”) and in-flight connectivity (“IFC”)
system supply chain;
- pricing pressure from suppliers and
customers in our Media & Content segment and a reduction in the
aviation industry’s use of intermediary content service providers
(such as us);
- a reduction in the volume or
quality of content produced by studios, distributors or other
content providers or their refusal to license content or other
rights upon terms acceptable to us;
- a reduction or elimination of the
time between our receipt of content and it being made available to
the rental or home viewing market (i.e., the “early release
window”);
- the refusal of content providers to
license content to us, operational complexity and increased costs
or reducing content that we offer due to challenges maintaining and
tracking our music content licenses and rights related thereto,
which could cause a decline in customer retention or inability to
win new business;
- our use of fixed-price contracts in
our Media & Content segment that may lead to losses in the
future if the market price for our services declines relative to
our committed cost;
- our ability to successfully
implement a new enterprise resource planning system;
- our ability to protect our
intellectual property;
- the effect on our business and
customers due to disruption of the technology systems utilized in
our business operations;
- the costs to defend and/or settle
current and potential future civil intellectual property lawsuits
(including relating to music and other content infringement) and
related claims for indemnification;
- changes in regulations and our
ability to obtain regulatory approvals to provide our services or
to operate our business in particular countries or territorial
waters;
- compliance with U.S. and foreign
regulatory agencies, including the Federal Aviation Administration
(“FAA”), the U.S. Department of Treasury’s Office of Foreign Asset
Control (“OFAC”), Federal Communications Commission (“FCC”), and
Federal Trade Commission (“FTC”) and their foreign equivalents in
the jurisdictions in which we and our customers operate;
- regulation by foreign government
agencies that increases our costs of providing services or requires
us to change services;
- changes in government regulation of
the Internet, including e-commerce or online video
distribution;
- our ability to comply with trade,
export, anti-money laundering and anti-bribery practices and data
protection laws, especially the U.S. Foreign Corrupt Practices Act,
the U.K. Bribery Act, the General Data Protection Regulation and
the California Consumer Privacy Act once effective on January 1,
2020;
- changes in foreign and domestic
civil aviation authorities’ orders, airworthiness directives, or
other regulations that restrict our customers’ ability to operate
aircraft on which we provide services;
- our (along with our directors’ and
officers’) exposure to civil stockholder litigation relating to our
investor disclosures and the related costs of defending and
insuring against such litigation;
- uninsured or underinsured costs
associated with stockholder litigation and any uninsured or
underinsured indemnification obligations with respect to current
and former executive officers and directors;
- limitations on our cash flow
available to make investments due to our substantial indebtedness
and our ability to generate sufficient cash flow to make payments
thereon, comply with our reporting and financial covenants, or fund
our operations;
- our ability to repay the principal
amount of our bank debt, second lien notes due June 30, 2023 (the
“Second Lien Notes”) and/or 2.75% convertible senior notes due 2035
(the “Convertible Notes”) at maturity, to raise the funds necessary
to settle conversions of our Convertible Notes or to repurchase our
Convertible Notes upon a fundamental change or on specified
repurchase dates or due to future indebtedness;
- the conditional conversion of our
Convertible Notes;
- the effect on our reported
financial results of the accounting method for our Convertible
Notes;
- the impact of the fundamental
change repurchase feature and change of control repurchase feature
of the securities purchase agreement governing our Second Lien
Notes on our price or potential as a takeover target;
- our potential as a takeover target
due to price depression of our common stock;
- the dilution or price depression of
our common stock that may occur as a result of the conversion of
our Convertible Notes and/or Searchlight warrants;
- our ability to meet the continued
listing requirements of The Nasdaq Capital Market (“Nasdaq”), given
the Nasdaq Hearing Panel’s grant of our request for continued
listing of our common stock pursuant to an extension through April
15, 2020, or in certain circumstances, through May 4, 2020, to
regain compliance with the listing requirements;
- conflicts between our interests and
the interests of our largest stockholders;
- volatility of the market price of
our securities;
- anti-takeover provisions contained
in our charter and bylaws;
- the dilution of our common stock if
we issue additional equity or convertible debt securities;
- the possibility that we may
experience delays in filing our periodic SEC reports due to our
material weaknesses in our internal control over financial
reporting, which would result in our ineligibility to use a
registration statement on Form S-3 to register the offer and sale
of securities in the future;
- additional losses due to further
impairment in the carrying value of our goodwill;
- changes in accounting standards,
including the new credit loss standards; and,
- other risks and factors listed
under “Risk Factors” in our Annual Report on Form 10-K for the year
ended December 31, 2018 and our subsequently filed Quarterly
Reports on Form 10-Q.
The forward-looking statements herein speak only
as of the date the statements are made as of (the filing date of
this press release). You should not put undue reliance on any
forward-looking statements. We assume no obligation to update
forward-looking statements to reflect actual results, changes in
assumptions or changes in other factors affecting forward-looking
information, except to the extent required by applicable securities
laws. If we do update one or more forward-looking statements, no
inference should be drawn that we will make additional updates with
respect to those or other forward-looking
statements.Financial Information
The table below presents financial results for
the three months and year ended December 31, 2019 and
2018.
|
Global Eagle
Entertainment Inc. |
Condensed
Consolidated Statements of Operations |
(In
thousands, except per share amounts) |
(Unaudited) |
|
|
|
|
|
|
|
|
|
Three Months Ended December 31, |
|
Year Ended December 31, |
|
2019 |
|
|
2018 |
|
|
2019 |
|
|
2018 |
|
Revenue: |
|
|
|
|
|
|
|
Licensing and services |
144,035 |
|
|
145,668 |
|
|
592,162 |
|
|
606,227 |
|
Equipment |
18,867 |
|
|
14,940 |
|
|
64,715 |
|
|
40,867 |
|
Total revenue |
162,902 |
|
|
160,608 |
|
|
656,877 |
|
|
647,094 |
|
Cost of
sales: |
|
|
|
|
|
|
|
Licensing and services |
117,152 |
|
|
123,316 |
|
|
474,604 |
|
|
480,864 |
|
Equipment |
16,289 |
|
|
15,281 |
|
|
49,121 |
|
|
31,529 |
|
Total cost of sales |
133,441 |
|
|
138,597 |
|
|
523,725 |
|
|
512,393 |
|
Gross
margin |
29,461 |
|
|
22,011 |
|
|
133,152 |
|
|
134,701 |
|
Operating Expenses: |
|
|
|
|
|
|
|
Sales and marketing |
6,470 |
|
|
8,104 |
|
|
28,759 |
|
|
37,624 |
|
Product development |
6,808 |
|
|
7,033 |
|
|
26,652 |
|
|
32,740 |
|
General and administrative |
26,008 |
|
|
34,959 |
|
|
109,424 |
|
|
134,663 |
|
Provision for (gain from) legal settlements |
(1,669 |
) |
|
1,451 |
|
|
4,419 |
|
|
1,317 |
|
Amortization of intangible assets |
6,269 |
|
|
7,889 |
|
|
28,646 |
|
|
38,440 |
|
Total operating expenses |
43,886 |
|
|
59,436 |
|
|
197,900 |
|
|
244,784 |
|
Loss from
operations |
(14,425 |
) |
|
(37,425 |
) |
|
(64,748 |
) |
|
(110,083 |
) |
Other income
(expense): |
|
|
|
|
|
|
|
Interest expense, net |
(22,224 |
) |
|
(20,818 |
) |
|
(89,711 |
) |
|
(76,218 |
) |
Income (loss) from equity method investments |
2,204 |
|
|
(49,921 |
) |
|
9,980 |
|
|
(46,310 |
) |
Change in fair value of derivatives |
134 |
|
|
384 |
|
|
1,066 |
|
|
97 |
|
Other expenses, net |
(18 |
) |
|
(194 |
) |
|
(504 |
) |
|
(1,017 |
) |
Loss before
income taxes |
(34,329 |
) |
|
(107,974 |
) |
|
(143,917 |
) |
|
(233,531 |
) |
Income tax expense |
1,771 |
|
|
1,203 |
|
|
9,526 |
|
|
3,068 |
|
Net
loss |
(36,100 |
) |
|
(109,177 |
) |
|
(153,443 |
) |
|
(236,599 |
) |
|
|
|
|
|
|
|
|
Net loss per
share – basic and diluted |
(0.39 |
) |
|
(1.19 |
) |
|
(1.66 |
) |
|
(2.59 |
) |
Weighted
average shares outstanding – basic and diluted |
92,864 |
|
|
91,848 |
|
|
92,427 |
|
|
91,325 |
|
|
|
|
|
|
|
|
|
|
Global Eagle
Entertainment Inc. |
Condensed
Consolidated Balance Sheet |
(In
thousands, except share per share amounts) |
(Unaudited) |
|
|
December 31, 2019 |
|
December 31, 2018 |
Assets |
CURRENT
ASSETS: |
|
|
|
|
Cash and cash equivalents |
|
$ |
23,964 |
|
|
$ |
39,154 |
|
Restricted cash |
|
|
498 |
|
|
|
801 |
|
Accounts receivable, net |
|
|
88,219 |
|
|
|
97,623 |
|
Inventories |
|
|
26,695 |
|
|
|
34,649 |
|
Prepaid expenses |
|
|
6,753 |
|
|
|
9,104 |
|
Other current assets |
|
|
12,839 |
|
|
|
10,498 |
|
TOTAL
CURRENT ASSETS: |
|
|
158,968 |
|
|
|
191,829 |
|
Content library |
|
|
3,645 |
|
|
|
6,966 |
|
Property, plant and equipment, net |
|
|
145,295 |
|
|
|
176,577 |
|
Right-of-use assets |
|
|
39,187 |
|
|
|
- |
|
Goodwill |
|
|
159,607 |
|
|
|
159,562 |
|
Intangible assets, net |
|
|
55,483 |
|
|
|
84,136 |
|
Equity method investments |
|
|
78,886 |
|
|
|
83,135 |
|
Other non-current assets |
|
|
27,509 |
|
|
|
14,882 |
|
Total
Assets |
|
$ |
668,580 |
|
|
$ |
717,087 |
|
Liabilities
and Stockholders' Equity |
CURRENT
LIABILITIES: |
|
|
|
|
Accounts payable and accrued liabilities |
|
$ |
179,518 |
|
|
$ |
177,056 |
|
Deferred revenue |
|
|
12,317 |
|
|
|
7,430 |
|
Current portion of long-term debt and finance leases |
|
|
15,678 |
|
|
|
22,673 |
|
Current portion of operating lease liabilities |
|
|
8,319 |
|
|
|
- |
|
Other current liabilities |
|
|
7,081 |
|
|
|
5,032 |
|
TOTAL
CURRENT LIABILITIES: |
|
|
222,913 |
|
|
|
212,191 |
|
Deferred revenue, non-current |
|
|
86 |
|
|
|
1,116 |
|
Long-term debt and finance leases |
|
|
757,384 |
|
|
|
686,938 |
|
Long-term operating lease liabilities |
|
|
23,636 |
|
|
|
- |
|
Deferred tax liabilities |
|
|
5,894 |
|
|
|
8,406 |
|
Other non-current liabilities |
|
|
33,821 |
|
|
|
34,771 |
|
Total
Liabilities |
|
|
1,043,734 |
|
|
|
943,422 |
|
Stockholders' Equity |
|
|
|
|
Common stock |
|
|
10 |
|
|
|
10 |
|
Treasury stock |
|
|
(30,659 |
) |
|
|
(30,659 |
) |
Additional paid-in capital |
|
|
818,961 |
|
|
|
814,488 |
|
Subscriptions receivable |
|
|
(597 |
) |
|
|
(597 |
) |
Accumulated deficit |
|
|
(1,162,901 |
) |
|
|
(1,009,458 |
) |
Accumulated other comprehensive income (loss) |
|
|
32 |
|
|
|
(119 |
) |
Total
Stockholder's Deficit |
|
|
(375,154 |
) |
|
|
(226,335 |
) |
Total
Liabilities and Stockholders' Equity |
|
$ |
668,580 |
|
|
$ |
717,087 |
|
|
|
|
|
|
|
|
|
|
|
Global Eagle
Entertainment Inc. |
Reconciliation of GAAP to Non-GAAP Measure |
(In
thousands) |
(Unaudited) |
|
|
Three Months EndedDecember 31, |
|
Year EndedDecember 31, |
|
|
|
Net loss to Adjusted EBITDA reconciliation |
|
|
2019 |
|
|
|
2018 |
|
|
|
2019 |
|
|
|
2018 |
|
Net
loss |
|
$ |
(36,100 |
) |
|
$ |
(109,177 |
) |
|
$ |
(153,443 |
) |
|
$ |
(236,599 |
) |
Interest expense, net |
|
|
22,224 |
|
|
|
20,818 |
|
|
|
89,711 |
|
|
|
76,218 |
|
Income tax expense |
|
|
1,771 |
|
|
|
1,203 |
|
|
|
9,526 |
|
|
|
3,068 |
|
Depreciation and amortization |
|
|
21,053 |
|
|
|
25,828 |
|
|
|
85,319 |
|
|
|
100,532 |
|
EBITDA |
|
|
8,948 |
|
|
|
(61,328 |
) |
|
|
31,113 |
|
|
|
(56,781 |
) |
Depreciation and amortization from equity method investments |
|
|
2,238 |
|
|
|
2,464 |
|
|
|
8,723 |
|
|
|
9,586 |
|
Change in fair value of financial instruments |
|
|
(134 |
) |
|
|
(384 |
) |
|
|
(1,066 |
) |
|
|
(97 |
) |
Other expense, net |
|
|
18 |
|
|
|
51,080 |
|
|
|
504 |
|
|
|
51,903 |
|
Stock-based compensation expense |
|
|
983 |
|
|
|
3,025 |
|
|
|
6,343 |
|
|
|
12,817 |
|
Strategic-transaction, integration and realignment expenses |
|
5,372 |
|
|
|
14,399 |
|
|
|
18,111 |
|
|
|
27,512 |
|
Internal-control and delayed audit expenses |
|
|
2,241 |
|
|
|
2,649 |
|
|
|
10,463 |
|
|
|
22,259 |
|
Loss on disposal of fixed assets |
|
|
80 |
|
|
|
126 |
|
|
|
463 |
|
|
|
528 |
|
Non-ordinary-course legal (recovery) expenses |
|
|
(622 |
) |
|
|
2,515 |
|
|
|
8,245 |
|
|
|
2,924 |
|
Losses on significant customer bankruptcies |
|
|
3,724 |
|
|
|
2,484 |
|
|
|
5,912 |
|
|
|
2,484 |
|
Expenses incurred in connection with grounded aircraft |
|
|
1,790 |
|
|
|
- |
|
|
|
2,423 |
|
|
|
- |
|
Adjusted EBITDA |
|
$ |
24,638 |
|
|
$ |
17,030 |
|
|
$ |
91,234 |
|
|
$ |
73,135 |
|
|
|
|
|
|
|
|
|
|
|
|
Three Months EndedDecember 31, |
|
Year EndedDecember 31, |
|
|
|
Cash
Flow from Operations to Free Cash Flow reconciliation |
|
|
2019 |
|
|
|
2018 |
|
|
|
2019 |
|
|
|
2018 |
|
Cash used in
operations |
|
$ |
(899 |
) |
|
$ |
(4,645 |
) |
|
$ |
(8,899 |
) |
|
$ |
(74,110 |
) |
Purchases of property and equipment |
|
|
(2,503 |
) |
|
|
(9,928 |
) |
|
|
(20,291 |
) |
|
|
(43,451 |
) |
Free
Cash Flow |
|
$ |
(3,402 |
) |
|
$ |
(14,573 |
) |
|
$ |
(29,190 |
) |
|
$ |
(117,561 |
) |
|
|
|
|
|
|
|
|
|
See “About Non-GAAP Financial Measures” above,
including our definition of Adjusted EBITDA and Free Cash Flow
described therein.
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